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Executives

Steven B. Tanger - President and Chief Operating Officer

Frank C. Marchisello, Jr. - Executive Vice President, Chief Financial Officer & Secretary

Analysts

[Samit Hareek] – Banc of America Securities

Analyst for Michael Bilerman- Citigroup

Analyst for Jonathan Habermann- Goldman Sachs

Nathan Isbee – Stifel Nicolaus & Company Inc.

Ben Yang - Green Street Advisors

Tanger Factory Outlet Centers, Inc. (SKT) Q2 2008 Earnings Call July 30, 2008 10:00 AM ET

Operator

Welcome to Tanger Factory Outlet Centers second quarter 2008 conference call.

Please note that during this conference call some of management’s comments will be forward-looking statements regarding the company’s property operations, leasing, tenant sales trends, development, acquisition, expansion, and disposition activities, as well as their comments regarding the company’s funds from operations, funds available from distribution, and dividends.

These forward-looking statements are subject to numerous risks and uncertainties and actual results could differ materially from those projected due to factors including but not limited to changes in economic and real estate conditions, the availability and cost of capital, the company’s ongoing ability to lease, develop, and acquire properties, as well as potential tenant bankruptcies and competition. We direct you to the company’s filings with the Securities and Exchange Commission for a detailed discussion of the risks and uncertainties.

This call is being recorded for rebroadcast for a period of time in the future. As such, it is important to note that management’s comments include time-sensitive information that may be accurate only as of today’s date, July 30, 2008.

(Operator Instructions) On the call today will be Stephen Tanger, President and Chief Operating Officer, and Frank Marchisello, Executive Vice President and Chief Financial Officer.

I will now turn the call over to Stephen Tanger.

Steven B. Tanger

Frank will take you through our financial results and I will follow with a summary of our operating performance and future developments, and then we’ll have time for any questions.

I’ll now turn the call over to Frank.

Frank C. Marchisello, Jr.

Our funds from operations per share for the second quarter of 2008 was $0.40 per share, adjusted for the previously announced $8.9 million treasury locked settlement and the $406,000 prepayment penalty, our total funds from operations available to common shareholders for the second quarter increased by 10.3% to $24.4 million compared to $22.1 million last year. Adjusted FFO per share increased 10.2% to $0.65 per share as compared to $0.59 per share last year.

Year-over-year increase in FFO continues to be driven by our ability to drive rental rates on renewals and re-leased space as well as incremental revenues from our four expansion projects which opened during the fourth quarter of 2007. Our adjusted FFO payout ratio for the quarter ended June 30, 2008 was approximately 59% compared to 61% last year. Our FAD payout ratio was 119% for the second quarter as compared to 92% last year.

We are continuing our plan to invest additional dollars in capital improvements during 2008 including the $17 million reconfiguration project currently underway at our center located on Highway 501 in Myrtle Beach, South Carolina. Excluding this reconfiguration project on which we have spent $7.2 million year to date, our FAD payout ratio would have been 79% for the second quarter and 78% for the first six months of 2008. We currently believe we can maintain an FFO payout ration in the 60% range and an FAD payout ratio of approximately 100% during 2008. Excluding the Myrtle Beach reconfiguration project, our FAD payout ratio for 2008 is expected to be in the mid to low 80% range.

In addition we will continue to invest in our ongoing efforts to increase occupancies at select center and attract new high volume tenants to the outlet industry. We are committed to achieving high quality long term earnings by consistently investing in our business.

During the second quarter of 2008 we closed on a $235 million unsecured three year term loan facility. The syndicated facility was jointly arranged by Banc of America Securities and Wells Fargo Bank. The amount of the facility was originally set at $200 million but was upsized to $235 million based upon strong demand for participation. In total, 9 banks participated in the syndication of which 5 were new relationships for our company. Even in this extremely tight credit market with very little liquidity, our strong balance sheet and longstanding relationships allowed us to access capital at very attractive rates. The facility bears a floating interest rate at a 160 basis point spread over LIBOR. Subsequently on July 9, we completed a three year swap transaction which converted the floating rate to a fixed interest rate of 5.21% on $118 million of the term loan facility until April 1, 2011. On June 26, 2008 we prepaid our only remaining mortgage loan which had a principal balance of $170.7 million. Our entire wholly-owned portfolio of 29 properties totaling about 8,450,000 square feet is now unencumbered, providing us even more financial flexibility at a time in the cycle when it is needed the most.

On a consolidated basis our total market capitalization at June 30, 2008 was approximately $2.2 billion and our debt to total market capitalization at the end of the second quarter was approximately 34.8%. We also maintained a strong interest coverage ratio of 3.56 times for the second quarter of 2008.

Taking in consideration the interest rate swap transaction, 67.8% of our debt as of June 30 was at fixed rate. At this point we had no debt maturities until 2011. As of June 30 we had $196.7 million available on our $325 million in unsecured lines of credit at an interest rate of 75 basis points over LIBOR. A strong balance sheet is a strategic advantage and will protect our franchise, especially in turbulent market conditions like these. No matter what happens in the economy, we have access to capital liquidity and the overall strength to continue to invest wisely in our business.

I’ll now turn the call over to Steve.

Steven B. Tanger

The outlet industry continues to be a profitable channel distribution for our tenants and we are excited to be a major player in a growing industry. Continuing to build off the positive trends of the past couple of years, we had an outstanding second quarter 2008. From an operational standpoint, I’m pleased to report that the robust rent spreads we achieved the last few years have continued into the second quarter. As of June 30, 2008, we have executed or in process approximately 76% of the square feet associated with leases that come up for renewal throughout our wholly-owned portfolio this year, compared to 71% last year.

During the first six months of 2008, we have achieved an average increase on executed renewals of 18.3% on a straight line basis compared to 13.6% last year. Over 403,000 square feet was re-tenanted during the first half of 2008, producing an increase in average base rent on a straight line basis of 43.1% over the rent that was being paid by the previous tenant, compared to an increase of 40.1% last year. We are continuing to capture the embedded growth in our portfolio as leases entered into 10 to 15 years ago come to the end of their term. Our low cost of occupancy, sales growth, and demand for space from our tenants allows us to continue to increase rent while remaining a profitable distribution channel for our tenants.

The fundamental matrix of our business remains strong. Same center NOI growth during the quarter was 3.9% compared to 2.3% during the second quarter of 2007. Year to date our same center NOI grew by 4.8% compared to 2.7% during the same period last year. We continue to be comfortable with our comp center NOI growth assumption of 4% this year. The occupancy rate for our wholly-owned stabilized properties was 96.2% at the end of the second quarter of 2008, up 100 basis points from the first quarter of this year. As we stated on our first quarter conference call, we recaptured 38 stores that were occupied by 6 tenants, representing a gross leasable area of approximately 236,000 square feet or 2.8% of our wholly-owned portfolio.

Sales of these tenants averaged only $167 per square foot with an average base rental rate of $16 per square foot. Approximately 48% of this phase has already been re-leased at base rental rate averaging 60% higher than the $16 average rent being paid by the previous tenants. Our goal is to have most of the remaining space re-leased by the end of this year.

During the second quarter we had four additional tenants announce plans to close multiple stores throughout their outlet portfolio for various reasons. Within our portfolio this represents 34 stores containing approximately 109,000 square feet, or 1.3% of gross leasable area. Once again, these stores represent some of the least productive stores in our portfolio, with average sales of approximately $178 per square foot and average base rental rates of approximately $17.60. The majority of these store closing will occur towards the end of 2008 and the beginning of 2009, giving us ample time to work on re-tenanting this space with higher volume tenants.

These tenants were certainly the exception to the rule. In fact , the majority of our tenants have in their 2008 plan to increase the number of outlet stores in their portfolio. The good news is that we do not have a single store with retailers that have recently announced bankruptcies, including Steve and Barry’s, Linens N Things, and Sharper Image. We have now executed leases and welcome to our portfolio the following new tenants: Stuart Weitzman, True Religion, Neimann Marcus Last Call, Restoration Hardware, Victoria’s Secret, and Woolford. Outlet stores remain a very profitable channel of distribution for our tenants. Tanger Outlet Centers represent an attractive, defensive property type and growth opportunity during an economic slow down. While not immune from the effects of the slowing economy or possible recession, Tanger enters this environment with high occupancy, many long-term leases ending with below-market rents, and a strong balance sheet.

With respect to tenant productivity, reported tenant comparable sales within our wholly-owned portfolio decreased 3.8% for the rolling three months ended June 30, compared to June 30, 2007, and were up less than 1% compared to the previous year, averaging $340 per square feet for the rolling 12 months.

Sales during the second quarter were impacted by the general weakness in the US economy, the shift in the Easter holiday season to the first quarter, as well as severe weather and flooding in the Midwestern United States during the second quarter of 2008. In addition, two of our centers are currently undergoing major renovations during this peak vacation season, which has adversely affected the average tenant sales at these two centers on a short term basis. As most of you know, the majority of our centers are located in areas that attract domestic tourists. We have not benefited materially from the extraordinary sales volume generated by international tourists taking advantage of the weak dollar.

Turning to our development pipeline, construction of our development in Washington County, south of Pittsburgh, continued during the second quarter of this year. We have signed leases for approximately 81% of the 370,000 square foot [first days], with an additional 5% under negotiation or out for signature. When the center celebrates its grand opening on August 29, we expect to be 86% to 90% occupied. As for our development site in Deer Park, Long Island, New York, site work and construction continues on an initial phase that will contain approximately 682,000 square feet. Currently we have signed leases for approximately 69% of the first phase with an additional 9% under negotiation or out for signature.

We are committed to the environment and pleased to report that the Tanger Outlet Center in Deer Park will be the first LEED-certified shopping center on Long Island. We have currently scheduled a grand opening for October 23 of this year. Both developments will be delivered on budget. Upon stabilization, our initial return on cost in Washington County is expected to be 10% to 10.5% and in Deer Park it is expected to be 8.5% to 9.5%.

We currently have signed purchase options for new development sites in Mebane, North Carolina, Port St. Lucie, Florida, Irving, Texas, and most recently, Glendale, which is a suburb of Phoenix, Arizona. Initial reaction to these sites from our magnet tenants has been very positive. However, we are still in the early due diligence study periods on all of these sites. We also have several target markets in our shadow pipeline. Our longstanding policy of only buying property and starting construction when at least 50% of the first phase is leased remains in place. We will not build on speculation. Our goal remains to deliver one to two new centers each year over the next three to five year period. Though mindful of the current economic environment, we are long term optimists about the future of the United States economy and our company. Current market challenges create opportunities for companies with strong balance sheets and access to capital. Our solid balance sheets should allow us to fund our healthy development pipeline and drive good strong growth in our business for years to come.

Based on our internal budgeting process, our view of current market conditions, and the strength and stability of our core portfolio, we are adjusting our estimated diluted net income per share guidance for 2008 to a range of $0.65 to $0.71 per share and our FFO guidance for 2008 to a range of $2.40 to $2.46 per share. Our guidance range reflects a number of variables such as the expected lead time necessary to release the space vacated by certain tenants during January of this year, our projected opening dates for our two new centers, as well as the overall sales productivity of our tenants. The midpoint of this range as adjusted for the $8.9 million treasury locked settlement and the $406,000 prepayment penalty represents an increase in our previous FFO guidance of approximately $0.04 per share and an increase in FFO over the prior year of 8.1%.

With that, we will be happy to answer any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from [Samit Hareek] of Banc of America Securities.

[Samit Hareek] – Banc of America Securities

Hi, good morning, I’m here with Christy McElroy as well. Can you elaborate on the comment in your press release regarding flooding in the Midwest? Which specific centers were impacted and were there any damages not covered by insurance? Also, if you can, if you can quantify the resulting impact on sales growth and percentage rents in the quarter?

Steven B. Tanger

Let me take them one at a time. We have a center which we opened last year in Wisconsin Dells, Wisconsin, highly publicized at Lake Delton, which created the Wisconsin Dells. The dam that created the lake broke. It was highly publicized in that area and affected traffic. In Branson, Missouri, Lake Branson flooded, and Branson of course is a very popular tourist area in the Midwest. Finally we have a center in Williamsburg, Iowa, and regrettably Iowa was subject to considerable flooding for most of the second quarter. I’m pleased to tell you thought that none of our centers had any significant damage and any damage we had was covered by insurance.

[Samit Hareek] – Banc of America Securities

I guess then taking that, do you have any idea exactly how much of that impacted your percentage rents and the sales growth in the quarter?

Steven B. Tanger

I think about 10% of our portfolio was located in the Midwest. We can certainly quantify for you and if you want to call us after the call we can try to give you an estimate but we don’t have that estimate right now.

[Samit Hareek] – Banc of America Securities

Okay and lastly, I guess, do you have any sense that maybe there’s becoming some slowing customer traffic driven by fewer people making the drive out to your centers given higher gas prices or is really some of that or most of that offset as consumers trade down to more discounted merchandise given the current environment?

Steven B. Tanger

I think I’d agree with both your statements. Every business is affected by higher gas prices which are in direct relation to higher oil prices. We’re pleased to see that oil is now back down almost to a high by historic levels back down to $120, $122 a barrel, which is off 17% this month alone. So hopefully that has already started to reflect in lowering gas prices. But yes, our traffic was down in the second quarter, and yes, it was probably a result in some areas of higher gas prices. Offsetting that, the old adage still remains true. In good times people like a bargain, and in the not-so-good times they need one. Outlet centers remain the distribution channel where consumers can buy brand name products direct from the manufacturer. They cut out the middle man and get the largest assortment of brand name products and the best values, so we still remain a very profitable distribution channel for our tenants and we have long term leases with sophisticated retailers that continue to do well, most of them continue to do well even in tough economic times.

[Samit Hareek] – Banc of America Securities

Okay, thank you.

Operator

Your next question comes from Michael Bilerman with Citi.

Analyst for Michael Bilerman- Citigroup

Hey guys, it ‘s Mannie here with Michael and [Abeeka]. Question for you on the yields at Deer Park and Pittsburgh. On a call about a year ago you guys have yields for Deer Park that were about 50 to 100 bits higher than they were today. What caused those yields to fall?

Steven B. Tanger

Well there’s higher construction costs, cost of materials has gone up significantly, and I think those are basically the two reasons.

Analyst for Michael Bilerman- Citigroup

So when you said that the costs were in line, those are to your most recent estimates, rather than to a year ago?

Steven B. Tanger

That’s correct.

Analyst for Michael Bilerman- Citigroup

And how long to stabilize those projects?

Steven B. Tanger

We expect stabilization within a year after opening.

Analyst for Michael Bilerman- Citigroup

And then in terms of the new development projects planned for I guess St. Lucie, Irving, and Phoenix, there is competing developments in each of those markets. How do those change your plans and do you think that your centers will go forward?

Steven B. Tanger

There always seems to be competing centers whenever we announce, so in 27 years that’s really nothing new. In each market we feel that we have the best location for an outlet center or we wouldn’t have put it under contract and we’re in the process right now of talking to tenants. In Port St. Lucie there is not another outlet center that’s been identified in the trade area so I don’t really know what you’re referring to there. The Dallas market has at least one competing center 15 or 20 miles away. Our Dallas site which is in Irving, Texas, across from the Texas Stadium, is located in an area that sees about 400,000 cars a day through three major road systems. It is a terrific retail site. If the outlet tenants don’t support it, we are in conversations with well known retail developer and we may do kind of a hybrid site. We really haven’t finalized our plans there.

Analyst for Michael Bilerman- Citigroup

And then my last question, for your development in Charleston, it seems like that’s still off your occupancy schedule even though it was delivered two years ago or a year and a half ago. Why hasn’t that stabilized yet?

Frank C. Marchisello, Jr.

It was not off of our occupancy in the second quarter of ’08 nor the first quarter of ’08. That is for the June and September ’07 columns.

Analyst for Michael Bilerman- Citigroup

Thanks very much, guys.

Steven B. Tanger

I don’t want to leave anyone with the wrong impression. Charleston is 95% occupied.

Operator

Your next question comes from Jay Habermann with Goldman Sachs.

Analyst for Jonathan Habermann- Goldman Sachs

Hi, good morning, this is [Jahan Mahmoud]. I’m here with Jay Habermann as well. Just on the 34 stores that are expected to close over the last half of this year and then into 2009. Can you just give us some sense of whether these are sort of concentrated in particular regions or spread fairly evenly across the portfolio, and then also you had mentioned that there are about 1.3% of your GLA and if you could quantify the sort of percentages annual base rent that they would approximately represent?

Steven B. Tanger

First of all, the stores are spread across our entire portfolio. There’s no concentration and by simple math you can see that the average size store is only 3000 square feet. So we’re not looking to fill any big boxes like some of the other folks who unfortunately did Steve and Barry type deals. What was the second part of your question, please?

Analyst for Jonathan Habermann- Goldman Sachs

Just basically trying to quantify sort of the annual base rent that these stores would approximately represent.

Frank C. Marchisello, Jr.

As Steve mentioned in the call, it was about 109,000 feet with an average base rent of $17.60 so do the math and get close to $2 million.

Analyst for Jonathan Habermann- Goldman Sachs

Same-store sales were sort of weaker in the quarter and you sort of outlined the reasons behind that and I’m just trying to get a sense for what impact if any the fiscal stimulus the quarter might have helped to sort of offset the shift in timing that you were impacted by in the quarter?

Steven B. Tanger

I could only speculate. I suspect that a rather large part of it went to pay for gasoline and I suspect that part of it went to pay down consumer debt, but that’s sheer speculation on my part. We don’t survey our customers to find out what they did with the rebate check.

Analyst for Jonathan Habermann- Goldman Sachs

Okay great. Thanks, guys.

Operator

Your next question comes from Nathan Isbee with Stifel Nicolaus.

Nathan Isbee – Stifel Nicolaus & Company Inc.

Steve, can you talk about specific progress in the fashion tenant portion of Deer Park and specifically if tenants have been able to mitigate any radius restriction issues from Woodbury?

Steven B. Tanger

Sure. We have actually just yesterday received three more signed leases in the designer wing. Juicy Couture, Kate Spade, and Lucky Brand Jeans. We have in the quarter signed Woolford which is a very upscale ladies lingerie and hosiery store. We have BCBG signed, and we have letters of intent which are unsigned with several more. We have signed letters of intent but unsigned leases which I’m not prepared to announce. We expect that designer wing, upon stabilization, to be virtually completely full.

Nathan Isbee – Stifel Nicolaus & Company Inc.

Okay. What would you expect occupancy to be on October 23 in that portion?

Steven B. Tanger

It’s really too early to say and I don’t want to speculate because we’re in the process of finalizing deals with some tenants that have committed that they will open. We’re still talking about 90 days away. These are designers who tend to wait until the last minute. hey only open one or two stores a year and we’re going through that exercise now.

Nathan Isbee – Stifel Nicolaus & Company Inc.

I think you said earlier you’re in the early stages of due diligence on the four future projects. What would you say is the drop dead date to get started now for ’09 delivery?

Steven B. Tanger

It takes about a year to 14 months to build depending on if there’s site work involved and I don’t think any of these sites have extraordinary site work, so we need t be in the ground in the next 90 days to make fourth quarter of next year delivery.

Nathan Isbee – Stifel Nicolaus & Company Inc.

Do you still think that’s possible?

Steven B. Tanger

Depends if the leases are signed. We are standing by our policy of never building on speculation and we feel that these sites are outstanding retail sites and outstanding factory outlet center sites.

Nathan Isbee – Stifel Nicolaus & Company Inc.

But your policy is if I remember correctly 50%.

Steven B. Tanger

That’s correct.

Nathan Isbee – Stifel Nicolaus & Company Inc.

Where would you say between leases signed and in process are you on the top two sites that you’re looking at here in terms of timing?

Steven B. Tanger

In Mebane, North Carolina, we’re between signed leases and those in final stages of negotiation, we’re at about 31%. In Port St. Lucie, we’re at about 23%. However, we’re in discussions with a couple of large tenants that each might represent 8% to 10% of the GLA and those deals are not signed yet but obviously that can change rapidly.

Nathan Isbee – Stifel Nicolaus & Company Inc.

Okay, thank you very much.

Operator

Your next question comes from Ben Yang with Green Street Advisors.

Ben Yang - Green Street Advisors

Most of my questions have been asked already, but I actually wanted to get a little bit more color on the 34 store closures. Could you tell us who those retailers are?

Steven B. Tanger

I hope that you and your families out there were not adversely affected by the earthquakes yesterday.

Ben Yang - Green Street Advisors

No, we hung through there, thanks.

Steven B. Tanger

The tenants that have let us know that they intend to close stores are Camp Coleman, Geoffrey Beene, Big Dog, and a couple of Pepperidge Farms stores.

Ben Yang - Green Street Advisors

Why are these particular stores closing at the end of the year as opposed to making plans to shutter at this point?

Steven B. Tanger

Each company has a different reason. I thin that they are working with us to... We are a disposal system for excess inventory so they are using the opportunity to phase out these stores and turn the excess inventory into cash between now and the end of the year. If, for instance, Geoffrey Beene was licensed by Phillips Van Heusen, and that relationship has ended, and there’s already closings as is with Big Dog.

Ben Yang - Green Street Advisors

Okay, that’s helpful, thank you.

Operator

There are no further questions at this time. I will now turn the call back over to Mr. Steven Tanger for any closing remarks.

Steven B. Tanger

I’d just like to thank all of you for your continued interest in our company. Frank and I are always available to answer any other questions you may have. Please feel free to give us a call. Each of you and all of you are invited to our grand opening in Washington County outside of Pittsburg for Labor Day weekend if you’d like to share that with us, and also on October 23 in Deer Park, New York, which is Exit 52 on the Long Island Expressway. Just let us know and we’d be happy to arrange a site visit for you.

Thank you all and God bless you.

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